Unit 5: Locational Marginal Prices

--Dr. P.S. KULKARNI

1
CONTENTS:

Locational Marginal Prices (LMP) and Financial Transmission Rights (FTR) :

Mathematical preliminaries, fundamentals of locational marginal pricing,
lossless DCOPF model for LMP calculation, loss compensated DCOPF model
for LMP calculation, ACOPF model for LMP calculation, introduction to
financial transmission rights, risk hedging functionality of financial
transmission rights, simultaneous feasibility test and revenue adequacy,
FTR issuance process, treatment of revenue shortfall, secondary trading of
FTRs, flow gate rights, FTR and market power, FTR and merchant
transmission investment.

2
Locational marginal pricing mechanism -

Market power is known as the ability of units and generation companies (GenCos) to
change electricity price profitably. As cleared in the definition, locational marginal
price (LMP) is the most important key in market power evaluation.

The LMP mechanism is used in the electricity market to represent grid constraints at
different locations on the electricity network, in order to efficiently use the
transmission capacity as a scarce good. Electricity prices at two different locations
are the same if there is sufficient transmission capacity (i.e. market coupling).
However, locational electricity prices differ if grid congestion occurs between the two
locations (i.e. market splitting). Depending on the level of details for grid constraint
representation, LMP mechanism can be based on a nodal pricing system (e.g.
Pennsylvania-New Jersey-Maryland (PJM) interconnection in US) or a zonal pricing
system (e.g. most Member States in EU) . Nodal pricing represents the grid
transmission capacity at each node of the power system. By contrast, zonal pricing
only takes into account the capacity of interconnector between two different price
zones, without representing the constraints within each zone.

The candidate locations for DG placement are identified on the basis of locational
marginal price (LMP).

3
Points to note :

 The reactive power costs were always ignored even though they provide the most
important function of system security and improved system operation.

 According to the draft of Indian Electricity Grid Code 2010, reactive power support is
still considered as an ancillary service.

 Generators will be losing money during light load conditions with LMP scheme of
modified OPF.

 The real and reactive power output of a generator is given by the generator capability
curve. The capability of the generator to produce real/reactive power is limited by
armature current, field current and under-excitation.

 The LMPs consists of 3 components, the marginal costs of generation, congestion rent
and the marginal cost of losses.

 LMPs can be positive or negative. A negative LMP would mean incentive for drawing
power at that bus and penalty for injecting power at that bus.

Ref. : Evaluation of Locational Marginal Pricing of Electricity under peak and off-
peak load conditions - Saranya A, K.Shanti Swarup, EED, IIT Madras.
4
5
INTRODUCTION

The Locational Marginal Pricing (LMP) mechanism is one of the most commonly employed
tools for market settlement in the deregulated power system environment. The Locational
Marginal Price (LMP) at a bus signifies the cost of supplying the next increment of load at
that bus. The LMP is the sum of supplying energy marginal cost, cost of losses due to the
increment and transmission congestion cost, if any, arising from the increment. and
congestion, if any, arising from that increment. The LMP is the true indicator of marginal
pricing of energy. The calculation of LMPs implicitly involves congestion management.
Compared to other approaches of congestion management, the LMP approach has found
very wide acceptance throughout the world due to its inherent efficiency in the network
capacity allocation.

Many of the successfully running power markets like PJM, NYISO, ISO-NE, CAISO, ERCOT,
MISO and NEMCO have already implemented LMP mechanism in their systems, whereas
other markets are now evolving towards locational marginal pricing. The LMP mechanism
was first invented by Dr. William Hogan in 1992 , and introduced at Pennsylvania-New
Jersey-Maryland (PJM) ISO. However, the basis of the LMP mechanism is the theory of spot
pricing proposed by Schweppe et al. The distinguished feature of the LMP mechanism is
that the entire course of power scheduling (pool as well as bilateral transactions) is done
centrally, recognizing system conditions and constraints arising thereof. The underlying
principle of locational marginal pricing is that the energy price varies from one location to
another location in the presence of congestion and loss in the system.

6
 FUNDAMENTALS OF LOCATIONAL MARGINAL PRICING

Locational marginal pricing is a centralized process of market clearing, where it is the

responsibility of the Independent System Operator (ISO) to determine the power dispatch
schedules as well as the energy prices. Unlike system uniform pricing
(i.e., unconstrained bidding) approach, network limits have to be considered while
scheduling generators, loads and bilateral transactions. Since network constraints are
considered in the market clearing process, it is not possible to determine the market
equilibrium simply by the intersection of a cumulative supply curve and a cumulative
demand curve. Instead, the power dispatch schedules and energy prices are calculated
through an optimization approach consisting of network and power flow related constraints.
An LMP market may be a single settlement or two settlement market. In case of a single
settlement market, scheduling is done only in day-ahead, whereas both day-ahead and real-
time scheduling is done for a two settlement market. A real-time market is essentially
within the hour market. The real-time scheduling and settlement are further done in
different time blocks. For example, in PJM, real-time scheduling is done in 5- minute time
blocks. The real-time scheduling starts with the state-estimation solution at the beginning
of each time block. The state-estimation solution gives the actual injection by each
generator and actual withdrawal by each load at the current point of time. It should be
noted that the above time frames of settlement are not strict and change depending upon
the market needs.
7
Apart from the offers from generators and bids from the loads, bids are also invited from the bilateral
transactions under locational marginal pricing. These bids are called up to network usage charge bids. An
up to network usage charge bid indicates the price that the concerned entity is ready to pay at maximum
for the scheduled quantity of its transaction. Similar to a load bid curve, a transaction bid curve is also
downward sloping. Apart from bids and offers, self-scheduling is also allowed in some markets like PJM.
Self-scheduling means showing price-unresponsiveness or price-insensitivity. A self-scheduled
generation, load or transaction is alternatively called as an inelastic generation, load or transaction,
respectively. The power dispatch schedules are obtained by maximizing social welfare function within
the network limits. The energy price at a location is defined as the rate decrease of optimal social welfare
with respect to the fixed load increase at that location. These prices are the locational marginal prices.
Generators are paid and loads have to pay the LMPs at the corresponding locations. For a bilateral
transaction, the market player has to pay a network usage charge depending upon the LMP difference
between its sink and source locations.

8
The bid and offer curves submitted by market participants may be piecewise or purely linear
curves. In case all the bid and offer curves are purely linear, the social welfare function W(P)
can be formulated as follows:

9
10
11
It should be noted that from the point of view of scheduling, the social welfare
function is nothing more than a simple mathematical function that has been devised
to reach efficient market equilibrium. Market equilibrium is said to be efficient if the
following conditions hold.

 Each selected generation is paid at least its offer price.

 The offer price associated with an unselected generation is higher than the
energy price at corresponding location.
 Each selected load or transaction has to pay at most its bid price.
 The bid price associated with an unselected load is lower than the energy price
at corresponding location.
 The bid price associated with an unselected transaction is lower than the LMP
difference between the corresponding locations.
 It is not possible to increase the output of a generator at a certain location, and
simultaneously increase the consumptions at some other location/s without
causing fall of at least one load node energy price below the gener¬ation node
energy price or creating network infeasibility, and vice versa.
 It is not possible to increase the quantity of a transaction without causing
network infeasibility or making its network usage charge negative.

12
ILLUSTRATIVE EXAMPLE

First five of the above conditions are explained with an example. Consider that the
offer price associated with a generation offer is $20/MWh and the offer gets fully
selected in the energy market. In case the market equilibrium is efficient, the LMP at
this generator’s location can never be less than $20/MWh. Similarly, let the offer price
associated with a un-selected generation- offer be $30/MWh. Under efficient market
equilibrium, the LMP at the corresponding location must be less than $30/MWh. The
opposite conditions hold for a load or transaction bid.

For the illustration of sixth and seventh conditions for efficient market equilibrium,
consider the sample system shown in Fig. 2. Fig. 3 shows one possible equilibrium
state satisfying the other necessary efficiency conditions. It can be seen that it is still
possible to increase the output of the generator at Node 1 and the consumption at
Node 2 with neither causing network infeasibility nor making the price at Node 2 to
fall below the price at Node 1. Therefore, this market equilibrium is inefficient. The
efficient equilibrium state is shown in Fig. 4. The condition on bilateral transaction
scheduling can be illustrated in a similar way.

13
14
 Figure 4: Efficient market equilibrium

A generation offer or load-bid may be real or virtual. A real load bid or generation offer is
always backed up by a real load or generation asset, respectively, whereas there is no
supporting physical load or generation asset, respectively, for a virtual bid or offer. For
example, an entity can submit a generation offer at a location where it does not have any
generating asset. Virtual bids and offers are allowed only under two-settlement market
structure. Any virtual generation or load accepted in a day-ahead market must be
counter-balanced by a same sized load or generation, respectively, in the real time
market. The motivations behind encouraging virtual bids and offers are to quickly
demolish the difference between day-ahead and real-time prices, and to increase the
market competitiveness.

15
ZONAL AND NODAL LMP

Locational marginal pricing is done either on nodal basis or zonal basis [3]. For a nodal market, a location
is defined by a node or a load zone or a generation hub and the impact of each nodal injection on line
flows is individually considered in the power dispatch problem. The dispatch solution has to respect the
flow limit of each line. As far as the definitions of load zone and generation hub are concerned, they are
fundamentally similar. A load zone or a generation hub is basically defined by a set of nodes and a load
or generation distribution vector, respectively. In order to calculate the line flows, the total load on a load
zone is distributed over its constituent nodes by means of the distribution vector assigned to it. The total
generation over a hub is distributed in the same fashion. However, for a load zone, the total load on it is
also same as the sum of the total load on each of its constituent nodes. This is not true for a generation
hub. Additionally, the scheduling and metering for a load zone is always done in the aggregation level by
assuming that the total load on this load zone naturally remains distributed in a fixed ratio. In case of a
generation hub, the scheduling and metering, in the end, is always done at the nodal level. It is the
responsibility of the entity, requesting a transaction from this hub, to maintain the injection pattern
specified by the generation distribution vector. Each individual load within a load zone has to pay the
load zone price only, whereas each individual generation within a hub is paid the LMP of the
corresponding node. The objectives behind defining load zones are to reduce the spatial price variation
and to ease the financial settlement. On the contrary, the objective behind defining hubs is to maintain
consistency with the previous (i.e., before nodal pricing) bilateral contractual agreements.

In case of a zonal market, the system is divided into multiple transmission zones and each of these
transmission zones defines a particular location. A transmission zone is basically a set of nodes and lines
that is modeled like a single node in the dispatch problem. Only the inter-zonal line flow limits are
considered during the power scheduling. The inter-zonal line flows are determined by the zonal
sensitivity factors. The main technical challenge with zonal pricing is to appropriately divide the system
into transmission zones so that zonal sensitivity factors may exist. For this, the branch-node sensitivity
factors relating any inter-zonal line should be almost same for all the nodes constituting a transmission
zone.

16
ADDITIONAL ASPECTS OF LMP MECHANISM-

The advantage of locational marginal pricing is multi kinds. First, this kind of energy
pricing can generate useful price signals to identify suitable locations for building new
generators, load centers and transmission facilities. For example, if the LMP at a certain
location continuously shows a higher value, it gives an initial indication that this location
may be a suitable place for building new generators. At the same time, penalizing each
bilateral contract with a location dependent network usage charge applies a strong
financial force on it, making it implicitly care for the congestion in the transmission
network. The pool prices also recognize the system limits. Unlike system pricing approach,
the possibility of administrative transmission load relief (TLR) thus becomes very small.
The need for TLR arises only during very rare occasions when the self-scheduled
generations, loads and transactions load the system beyond its capacity such that no
solution of the dispatch problem exists. Moreover, due to a joint optimization based
dispatch calculation, transmission capacities are allocated in optimal way to the energy
market participants as per their needs. The less the bid price of a generation bid the more
the amount of it would get selected. Similarly, the more the bid price of a load or
transaction bid the more the amount of it would get selected. The capacity allocation
occurs in optimal way due to measuring the relative needs of all the market part at the
same time by a single and non-profit making entity. However, this feature is not available
in the physical transmission right methodology.

17
Sr. ACOPF DCOPF
No.
1 The ACOPF model uses the AC formulation to DCOPF models are based upon DC power flow
represent power flow and thus can accurately approximation and, therefore, are less accurate.
represent the line flows and loss. Complicated. Without significant loss of accuracy, the DCOPF
models are much simpler that the ACOPF models.

2 Even though ACOPF provides the most accurate The DCOPF model can be lossless or loss
LMP, it is quite complex to model its constraints, compensated. In case of a lossless model, the
and cannot be used for real time applications. network loss is ignored at the time of LMP
calculation.

3 ACOPF provides the most accurate LMP. DCOPF is not plagued by the convergence
Sometimes, obtaining converged solution for very problem due to its simplicity. Solution of DCOPF
large systems becomes difficult. can be obtained with a single run of Linear
Programming (LP) because of the linearity
assumption. However, due to these assumptions,
the LMP obtained is not very accurate.

4 ACOPF model is prone to lack financial consistency Financial consistency can be obtained in a DCOPF
in general. Currently, NYISO is the only market that model. Most of the LMP markets employ DCOPF
employs an ACOPF model for calculating locational models for the purpose of market clearing.
marginal prices.

18
The ACOPF model involves solving a linear/non-linear objective function with linear

and non-linear equality and in-equality constraints. The objective function can be cost

minimization or social welfare maximization. Unlike DCOPF, it is required to solve

the non-linear power flow equations, and hence a non-linear optimization solver is

required to obtain a solution. For large systems, the dimension is quite high and it is

generally performed as an offline study.

19
20
21
22
23
24
25
26
SUMMARY
Use of LMP for energy pricing can generate useful price signals to identify suitable locations for
building new generators, load centers and transmission facilities. The LMP mechanism promotes
the optimal and efficient use of system resources like generation and transmission. However, even
though the LMP mechanism is economically very efficient, caution must be exercised before its
implementation. The LMP is very volatile as real time approaches and safeguard mechanisms like
FTRs are required to hedge against this uncertainty. A certain level of maturity on the part of the
market and its participants is required for these mechanisms to be effectively implemented and
remain in sync. Not all market participants may understand the intricacies involved in the LMP
mechanism. It is a crucial link to various other mechanisms involved in a Centralized dispatch
market environment.

27
TRANSMISSION RIGHTS

28
Transmission rights are valuable in electricity markets because they
(1) define property rights
; and
(2) are a mechanism to hedge transmission price risk.
Property rights entitle market participants to the benefits of using a
transmission system by reserving capacity on the line for their exclusive use
and/or by providing them with the financial benefits of the line. Property
rights also encourage market participants to make investments in the
transmission grid: They know their investments are protected because they
receive something fixed in return that they can value and trade. The
ability to hedge transmission price risk is an important tool in facilitating
an efficient electricity market. It allows market participants to lock
in the price of transmission usage, rather than paying variable prices
for congestion.

29
There are two types of transmission rights:
physical transmission rights (PTRs) and financial transmission rights (FTRs).

Physical or financial transmission rights may be used – depending on the power market
design - to hedge transmission availability and pricing risks in electricity markets.

While both of these provide the benefits described above, FTRs are often considered
superior in electricity markets with locational prices because the use of PTRs in these
markets can lead to serious problems.
PTRs involve the exclusive right to transport a predefined quantity of power between
two locations on the network, and accordingly, the right to deny access to the network
by market participants who do not hold the rights.
First, they provide clearly defined “property rights” because it is necessary to hold a
PTR between two locations in order to transport energy. This means that once a
market participant pays for capacity on a transmission line, it can be assured that this
capacity will be reserved exclusively for its use. Alternatively, in times of high demand
for transmission, it can sell the right to use the line. This will allow the PTR owner to
supplement the return on its investment by selling (or “subletting”) the capacity when
it is not being used, or when the congestion- induced market prices for capacity are
greater than the owners’ alternative options. The latter opportunity is particularly
likely to arise when someone else needs to buy transmission capacity at short notice .
With a PTR, the cost of transmission usage can be determined in advance of
usage.
30
31
 Introduction to Financial transmission Right (FTR) :

Financial transmission right (FTR) is an important tool and an especially feature for
stopping congestion charges in restructured electricity markets. Participants in the
transmission market as players are assumed to be a generation company (Gencos)
which also take part in an energy market and able to buy their require FTRs. In this
regard, there are two types of FTR: obligation or option. There are three main
questions which immediately arise for each player who is placed in the market. First,
which type of FTR is the best choice? second, how much power is needed to generate
by each player and third, how bid prices should be offered. Deciding on these trade-
offs is difficult and requires definition of special matrices to measure risk in each
possible condition in the transmission market. These matrices include: possibility of
flow direction alteration, probable forward and reverse power flow on each line,
maximum and minimum offering FTRs and the worst condition of load variation which
influence on each player’s decision. Based on these matrices, players try to maximize
their expected payoffs by taking into account the associated risks.
32
Financial transmission Right (FTR) :
The solution to the problem of efficient market design is to utilize a system operator
under the framework of bid‐based, security‐constrained, economic dispatch with
locational prices and financial transmission rights (FTRs). The bids and offers
express the preferences of market participants. Economic dispatch implemented by
the system operator solves the problem of coordination across the grid. The
locational prices reflect the marginal value of energy at each location. The
difference in the prices defines the opportunity cost of transmission between
locations. The FTRs provide the replacement for physical rights through the hedge
of this locational difference in prices. (Hogan, 1992)

33
 Risk hedging functionality of financial transmission rights -

Risk hedging can be done by modifying physical (hydropower - This hedging

strategy requires storage capacity over time and can typically be done by
hydropower generators) generation plans, or by using financial contracts. An
electricity company should hedge when the benefit probability distribution is
changed such that the benefit is greater than the hedging costs, or when it is
cheaper for the company than the owner to accomplish hedging. Hedging
results in less volatile profit but requires skilled competence to analyze the
electricity market. Forward prices may be used for the valuation of assets and
marking-to-market of electricity portfolios.

34
 Risk hedging functionality of financial transmission rights -

The long-term prediction of electricity prices and of possible congestions in the

electricity networks is difficult, and is arguably becoming more difficult due to the
increasing shares of intermittent power generation across Europe and in the rest of
the world. This same development is also relevant and noticeable in the Nordic
markets. For this reason, among others, the Nordic electricity market participants
need efficient hedging mechanisms to manage the price risks that occur in
transmission between price areas.
Price Hedging
With FTRs, traders in the wholesale markets for electricity have the means at hand
to hedge against the risk of locational price differences.
Holders of FTRs are able to enter into contracts with other market participants
without taking on the risk of transmission price fluctuations.

35
Simultaneous Feasibility Test And Revenue Adequacy -

36
Revenue Adequacy - A central feature of the FTR model is the principle of revenue
adequacy. The basic definition is that the system is revenue adequate if the
revenues collected from the economic dispatch in the form of congestion
payments are sufficient to fully fund payments for the FTRs. The general result is
that under reasonable conditions, there is a straightforward test that ensures
revenue adequacy. If for the given grid configuration, the FTRs would be
simultaneously feasible, then no matter what the pattern of actual loads and
generation, economic dispatch with locational prices would be revenue adequate.
The underlying logic is that the economic dispatch is by definition feasible, and
must be at least as valuable as any other feasible solution. In particular, the
economic dispatch must be at least as valuable as the FTR implied feasible
dispatch, valued at the locational prices. Hence, there must be enough economic
surplus value to in effect buy out all the FTRs and reconfigure the pattern of flows
according to the economic dispatch. (Harvey et al., 1997)
37
The revenue adequacy condition may not hold in practice. Since the revenue
adequacy result is a theorem, this means that real conditions must violate at least
one of the assumptions of the analysis. There are many ways to deviate from the
ideal, but the most prominent is the problem of ensuring simultaneous feasibility.
In essence, the problem arises when we award FTRs for more capacity on the grid
than actually exists at the time of the economic dispatch. It is obvious that this
could be a problem, and none would expect otherwise. The difficulty could arise
from a number of conditions.
The generic financial transmission right (FTR) appears under many names, such as
transmission congestion contract (TCC), congestion revenue right (CRR), up ‐to‐
congestion offers (UTC), auction revenue right (ARR), and so on. The functional
equivalent of FTRs, ARRs are an initial regulated allocation to transmission owners
or load serving entities to be redeemed in the FTR auction. Essentially all other
FTRs are voluntary purchases formal auctions or implicit in forward dispatch and
settlements. 38
First, the grid changes over time. For example, an unexpected transmission
outage for an extended period may mean that FTRs, including ARRs, awarded in
good faith are no longer feasible during the period of the outage. The result
could be revenue inadequacy resulting from a straightforward reduction in
capacity.
A second problem is that the revenue adequacy result applies to a complete
system. But actual regional transmission organizations cover only a part of the
interconnected grid. The result is that power flows across loops through the RTO
from generation outside the region serving load outside the region. If the flows
could be charged at the difference in locational prices, there might not be a
problem. But charging for loop flow is difficult and controversial. To the extent
that loop flow has not been accounted for in the allocation of FTRs, the result in
any dispatch could be revenue inadequacy.

39
A third possible problem would be in treatment of other costs that are not
related to FTRs, such as for losses, ancillary services or uplift payments that
might get lumped in with congestion costs. These are not congestion costs,
and would make it impossible to fully fund FTRs if the costs were included with
congestion costs. Before addressing policy for revenue inadequacy, a separate
additional point is to emphasize that the congestion costs, fully funded FTRs
and revenue adequacy results apply to a particular economic dispatch. When
there is more than one dispatch, and more than one settlement, a little care in
the accounting is all that is required.

40
 FTR issuance process

Financial Transmission Rights (FTRs) help power market participants reduce

price risks associated with transmission congestion. FTRs are issued based on
a process of solving a constrained optimization problem with the objective to
maximize the FTR social welfare under power flow security constraints. Security
constraints for different FTR categories (monthly, seasonal or annual) are
usually coupled and the number of constraints increases exponentially
with the number of categories. Commercial software for FTR calculation can
only provide limited categories of FTRs due to the inherent computational
challenges mentioned above.

41
Treatment of revenue shortfall

When a revenue shortfall occurs, i.e. congestion revenues cannot cover the settlement
payments to FTR holders, the system operators must make up the difference. The
various approaches adopted by system operators in the US for addressing such revenue
shortfalls include:
• Full payment to FTRs based on nodal prices and uplift of the shortfall to sellers or
buyers of energy (full funding approach)
• Prorate settlement to all FTRs to cover shortfall (“haircut” approach)
• Intertemporal smoothing of congestion revenue accounting by carrying over revenue
surpluses and shortfall over an extended time period.
• Prorate settlement to FTRs based on impact of derated flowgates
• Full funding of FTRs and assignment of shortfall to owners of derated flowgates.

Intertemporal consumption smoothing is using savings or borrowing to make

consumption less volatile than income (or sometimes wealth).
42
 Secondary trading of FTRs -

Secondary trading of financial transmission rights (FTRs) allows FTR participants to

adjust their FTR position (or to close it out altogether). This not only increases the
value of an FTR but also allows a more robust assessment of an FTR’s value, which
aides assessment of prudential security. The greater the level of activity in
secondary trading the greater these benefits. However, the level of activity of
secondary trading depends on the mechanisms available that facilitate secondary
trading.

43
Flow gate rights:

The flowgate rights approach is based on a decentralized market design. The

idea behind flowgates is that since electricity flows along many parallel paths, it
may be natural to associate the payments with the actual electricity flows. Key
assumptions include a power system with few flowgates or constraints, known
capacity limits at the flowgates and known power transfer distribution factors
(PTDFs) that decompose a transaction into the flows over the flowgates. In
practice, however, this may not be the case.

44
 FTR and market power

Generators can more easily exert local market power when transmission
congestion is present. The behavior of the generators in the FTR market should
then be regulated. Allocation of FTRs to a monopoly generator depends on the
structure of the market. When the FTRs are allocated initially to a single owner
that is neither a generator nor a load, the monopoly generator will want to
acquire all FTRs. When all FTRs initially are distributed to market players without
market power, the generator will buy no FTRs. When the FTRs are auctioned to
the highest bidders, the generator will buy a random number of FTRs. In the
radial line case, market power might be mitigated by not allowing generators to
hold FTRs related to their own energy delivery.
In practical implementations of the FTR model, market power mitigating rules
are designed. FERC indicates that insufficient demand-side response and
transmission constraints are the two main sources for market power

45
 FTR and merchant transmission investment.

Investments in new transmission capacity should create new economic capacity and
be efficient. This is facilitated by the feasibility test and the feasibility rule. The
feasibility test ensures that the amount of FTRs is restricted so that the payments to
FTR holders can be covered by the ISO. Furthermore, a new set of FTRs must satisfy
the feasibility rule where the transmission investor must select a new set of FTRs
such that both the new and old FTRs will be simultaneously feasible after the system
expansion. In particular, if social welfare is decreased by transmission expansion, the
investor will have to take FTRs with a negative value. (If social welfare is increased
there will be free riding). Some agents might still benefit from investments that
reduce social welfare, whenever their own commercial interests improve to an
extent that more than offsets the negative value of the new FTRs. The allocation of
FTRs before and after expansion is in the same direction and preserves
simultaneous feasibility.
46